Arvind Subramanian cautions forecasters on demonetisation impact

Chief economic advisor Arvind Subramanian has cautioned analysts and economists trying to estimate the impact of demonetisation on the country's GDP growth by calling it analytically a very unique experiment, which has no real precedence.

Subramanian said that no real model exits which can help estimate the impact of demonetisation on the GDP growth. The CEA, who was presenting the Economic Survey 2016-17 report here on Tuesday, however, said that demonetisation has a mixed impact on the economy.

The survey report says that "India's demonetisation is unprecedented, representing a structural break from the past. This means that forecasting its impact is hazardous. The discussion that follows, especially the attempts at quantification, must consequently be seen as tentative and far from definitive."

Subramanian said that there were many anecdotal evidence presented showing the negative impact of demonetisation, however, he said that what the government was interested in was a macro-assessment and hence it focused on five broad indicators while estimating the impact-- agricultural (rabi) sowing; Indirect tax revenue, as a broad gauge of production and sales; Auto sales generally, as a measure of discretionary consumer spending, and two-wheelers in particular as it is the best available indicator of rural and demand of the less affluent; Real estate prices; and real credit growth.

According to the survey, the high frequency indicators present a mixed picture. "Agricultural sowing, passenger car sales, and overall excise taxes bear little imprint of demonetisation; and sales of two-wheelers show a marked decline after demonetisation; credit numbers were already looking weak before demonetisation, and those pre-existing trends were further reinforced after November 8,"observed the survey.